Charlottes commercial real estate market is still climbing out of the recession but could be close to the cusp of a recovery, says an economist with national real estate firm Cassidy Turley.
And while the banking sector hasnt provided much momentum in the citys current rebound, says Kevin Thorpe, financial services could prove to be a strong upside scenario in the future.
Thorpe is scheduled to speak Wednesday at a forecast in uptown, but he spoke to the Observer Tuesday to share his insight into the local market.
Of the 380 metropolitan areas studied, only about 10 are thought to have fully recovered, Thorpe says. Included in the 10: Austin, Texas, Raleigh and New York.
Charlotte is struggling with relatively slow job growth, which limits demand for new space.
But the Queen Citys office market has been improving, absorbing a little less than 1 million square feet of office space since the recession, which Thorpe calls a healthy trajectory. When a market absorbs space, it means more tenants are moving in than leaving.
One trend that has become apparent during the recovery in both Charlotte and across the country: Tenants are overwhelmingly preferring newer, higher quality class A space over class B and C space, which typically are in poorer locations, are older or have fewer amenities. Tenants are choosing the more expensive class A space, even if property owners of B and C buildings reduce asking rent, Thorpe said.
Theres a pretty clear pattern of flight to quality in Charlotte, he said. The businesses that survived the downturn are very profitable and feeling good. They will pay up for the higher quality space.
The effects of the fight to quality arent yet clear, he added. Historically, companies returned to the older spaces as demand grew for the top locations. But because the recovery has been so slow going, it is unclear whether the class B and C properties will be able to recover or will one day need to be razed for new development, he said.
Its a great unknown in commercial real estate right now, he said.
Thorpe praised the areas industrial market, which he said is back to pre-recession levels. Charlotte-area rents rose 11 percent last year, which Thorpe said may be the highest in the country.
The sector may get another boost as the housing market steams along. A good percentage of warehouse inventory is typically filled with residential building materials. Now that were seeing housing come back to life, this could be an additional engine thats forming on the industrial side, he said.
Overall, Thorpe noted how Charlottes recent recovery has come with much help from the financial sector.
Charlottes recovery has also run parallel to national trends he is seeing.
But the banking industry, he said, could be the game changer for Charlotte because once the financial industry gains more solid footing, if the stars align, the recovery gains momentum, and banking comes back and gets bullish, that could be what will take Charlotte from being in the middle of the pack to being closer in the top 10 (growing markets).